The post FCA publishes its Business Plan for 2018/19 first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | All firms |
The Financial Conduct Authority (“FCA”) has set out its key priorities for the coming year in its Business Plan for 2018/19, along with its annual Sector Views. Inevitably, the priority for its discretionary activity is preparing for and implementing the changes resulting from European Union withdrawal (“Brexit”).
Additionally, seven priorities cut across different financial sectors and the other priorities listed relate to the seven specific financial sectors the FCA regulates.
This year’s Business Plan reflects the high level of resource the FCA needs to dedicate to Brexit to carry out the following priorities:
In addition, the FCA intends to advance some aspects of work to introduce a new duty of care provision for firms, beginning with the launch of an initial Discussion Paper, Feedback Statement and final version of its ‘Our Approach to Consumers’ paper in summer 2018.
The annual Sector Views issued by the FCA cover all the markets it regulates and give an overall view of how each sector is performing, based on the data held by the FCA and its view as at mid-2017.
The FCA describes the sector, the need the sector seeks to fulfil, the issues and developments the FCA are seeing and the impact of change, and are developed in three stages:
The FCA intends to review the use of data by financial services firms, including:
It believes this will help them better assess both potential opportunities and harm and where they may need to intervene.
The FCA will also further develop its relationship with the Information Commissioner’s Office in anticipation of the General Data Protection Regulation (“GDPR”) coming into force in May 2018, with the intention of publishing an updated Memorandum of Understanding (first issued in 2014) setting out how the two organisations will work together in future.
While the ICO will regulate GDPR, complying with GDPR requirements is something the FCA will consider under, for example, the requirements in the Senior Management Arrangements, Systems and Controls (“SYSC”) sourcebook. Under SYSC, firms should establish, maintain and improve appropriate technology and cyber resilience systems and controls.
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]]>The post FCA and PRA multi-firm review on Algorithmic Trading Compliance in Wholesale Markets first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | All firms carrying out algorithmic trading in wholesale markets |
The Financial Conduct Authority (“FCA”) and Prudential Regulation Authority (“PRA”) have been reviewing firms’ algorithmic trading activity and issued supervisory publications. For firms solo-regulated by the FCA, please refer to the FCA supervisory publication. Firms regulated by the PRA and FCA should refer to both supervisory publications.
Firms operating in wholesale markets increasingly use algorithms for a number of purposes across their trading activity. In particular, driven by the rise in electronic trading platforms and the increased availability of data, algorithms are now often used for making both execution and investment decisions.
Investment decision algorithms make automated trading decisions by determining which financial instrument should be purchased or sold.
Order execution algorithms optimise order-execution processes by automatic generation and submission of orders or quotes, to one or several trading venues once the investment decision has been taken.
It is essential that key oversight functions, including compliance and risk management, keep pace with technological advancements. In the absence of appropriate systems and controls, the increased speed and complexity of financial markets can turn otherwise manageable errors into extreme events with potentially wide-spread implications. As a result, algorithmic trading continues to be an area of focus for the FCA and other regulators across the globe.
The FCA supervisory publication highlights examples of good and poor practice observed during their cross-firm reviews on themes relating to algorithmic trading, ahead of the implementation of the Markets in Financial Instruments Directive (“MiFID II”).
There are examples of both good and poor practices highlighted in this report. The good practices present ways, but not the only ways, in which firms might comply with applicable rules and requirements, whereas the poor practices highlight areas where firms would now need to do further work to comply with the applicable requirements.
It is apparent firms have taken steps to reduce risks inherent to algorithmic trading but the FCA notes that firms need to do more work to identify and reduce potential conduct risks created by their algorithmic trading strategies.
In the UK, the algorithmic trading requirements were introduced through Chapter 7A of the Market Conduct Sourcebook (“MAR”). Further specification is provided in the European Commission Delegated Regulation 2017/589 of 19 July 2016 (also known as RTS 6).
The FCA will continue to assess whether firms have taken sufficient steps to reduce risks arising from algorithmic trading. These will include MIFID II investment firms and those non-MIFID investment firms, such as collective investment firms engaging in algorithmic trading, which are subject to the relevant requirements under Article 17 of MiFID II.
The FCA has identified five key areas of focus, based on the combined findings of the reviews, and with consideration of MIFID II requirements. They cover:
The post FCA and PRA multi-firm review on Algorithmic Trading Compliance in Wholesale Markets first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>The post Equities Electronic Trading Questionnaire ready for MiFID II first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>| Of relevance to: | Buy-side clients who need to request information from electronic trading providers in the European equity markets |
| Key date: | Applicable from 3 January 2018 |
The Association for Financial Markets in Europe and the Investment Association have published an updated version of the Equities Electronic Order Handling Questionnaire, incorporating the obligations and requirements set out under MiFID II.
Originally launched in March 2016, this Questionnaire establishes a common framework for buy-side clients to request information from electronic trading providers in the European equity markets, expanding on the requirements set out in ESMA’s guidelines on systems and controls for automated trading which cover:
Split into seven sections, the Equities Electronic Order Handling Questionnaire covers:
The Questionnaire assists in facilitating the fair and accurate sharing of information on the operation of algorithms between investors and their broker-dealers, encouraging and enabling safer and more efficient algorithmic trading. Market participants recognise the benefits of having this standard framework which covers electronic trading practices, including how an individual firm’s processes and decision-making frameworks facilitate best execution.
The scope of the Questionnaire is limited to equity/equity-like European Economic Area (EEA) securities which are traded through a firm based in the EEA that is a regulated firm under MiFID and associated national laws, unless otherwise specified.
The responses to the questions are valid for professional clients, unless otherwise specified in the specific response.
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